An Overview of Related Party Transactions in ...

An Overview of Related Party Transactions in India

Author Name : Leesa Mohanty

ABSTRACT

A related-party transaction is a contractual arrangement between two companies that already do business together. Regulatory organizations extensively scrutinize related party transactions because some, but not all, have the inherent potential for conflicts of interest. As more such violations have been publicized in recent years, this problem has grown in relevance.  For these reasons, RPTs are governed by a plethora of acts. If related-party transactions are abused, it can lead to fraud and financial ruin for all parties involved. American regulatory organizations ensure that related-party transactions are free of conflict and have no detrimental impact on the value of shareholders or the earnings of the firm.Companies frequently conduct business with their existing professional and personal networks. These close affiliates could be substantial shareholders, subsidiaries, or minority-owned businesses. The transaction may involve sales, leases, or loans, and is referred to as a related party transaction (RPT). While these transactions are legal, they are damaging to the existing shareholders' interests if they are not disclosed.

Keywords: Related party transactions, family firms, affiliates, subsidiaries, holding company